Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

Now that we know how important earnings and earnings surprises are, it's time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.

The Zacks Earnings ESP, Explained

The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.

The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.

When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% annual returns on average, according to our 10 year backtest.

Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.

Should You Consider Reinsurance Group?

The final step today is to look at a stock that meets our ESP qualifications. Reinsurance Group (RGA Quick QuoteRGA - Free Report) earns a #2 (Buy) 30 days from its next quarterly earnings release on February 6, 2025, and its Most Accurate Estimate comes in at $5.59 a share.

By taking the percentage difference between the $5.59 Most Accurate Estimate and the $5.25 Zacks Consensus Estimate, Reinsurance Group has an Earnings ESP of +6.56%. Investors should also know that RGA is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

RGA is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Chubb (CB Quick QuoteCB - Free Report) as well.

Chubb, which is readying to report earnings on January 28, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $5.63 a share, and CB is 21 days out from its next earnings report.

Chubb's Earnings ESP figure currently stands at +3.13% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $5.46.

Because both stocks hold a positive Earnings ESP, RGA and CB could potentially post earnings beats in their next reports.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>